FIRE Journey - Strategy and Position

[jakinvegas]

Hello People,

Been studying, and optimising for FIRE about a year now. Sharing my position and strategy for ideas and feedback.
40, single, no kids, work: tech, salary:123k, focused on long-term. annual expenditure: 35k, so FIRE target at 875k. Fair way off that at the moment.

Curious if any of the experts out there, have opinions on current strategies.

Current strategies:

Growth
- High Risk portfolio of shares via indexes and managed funds
- Pension first, but then max out LISA before ISA to get 25% bonus. 4k per year.
Costs
- Periodical transfer from Scottish Widows WGP to Vanguard SIPP to reduce fees
- Vanguard for SIPP, and Interactive Investor for ISA, AJ Bell for LISA. I understand that these are low cost brokers.
Tax Efficiency
- Salary Sacrifice to below 100k to reduce 60% tax threshold and gain on employers NI into WGP
- Max out last three years carry forward allowance
- Investments in ISA and LISA
- Use HMRC self assessment to claim back any tax from last years personal SIPP contribution

Net Worth Position.
Cash 5k
ISA 121k
SIPP 104k
Australian Pension 126k
House Equity 14k
LISA 0
TOTAL 370 k

Asset Allocation (wrapper OCF vehicle)



Retirement Plan: State pension, Private UK pension, Private Australian Pension, Possibly a buy to let, ISA to bridge.

Currently thinking about:
- Optimising platform fees on SIPP, Vanguard is good, but at certain thresholds I understand it's better to switch. For example, I think my fees are 0.15%*104k=156 pound. Wherby switching into Fidelity under an ETF would be 45 pound as they cap SIPP fees for ETFs.
(https://monevator.com/compare-uk-cheape ... e-brokers/)
- Considered consulting an IFA for advice and review of strategies, but not sure I need that now
- Future Buy to Let. If so will need to start BTL company because of personal tax bracket.
- Exposure to Australia. Considering Taking 50% of my ASX Australian pension and investing it in an ASIA index.

[Urbandreamer]

Hello People,

Been studying, and optimising for FIRE about a year now. Sharing my position and strategy for ideas and feedback.
40, single, no kids, work: tech, salary:123k, focused on long-term. annual expenditure: 35k, so FIRE target at 875k. Fair way off that at the moment.
....
Net Worth Position.
Cash 5k
ISA 121k
SIPP 104k
Australian Pension 126k
House Equity 14k
LISA 0
TOTAL 370 k

Two things that instantly jump out at me.
1) How accurate is your current annual expenditure and how well does it predict future expenditure. I.E does it contain a mortgage that may be paid off and what proportion is the cost of working.
2) You are over 40% of the way to your target, which I find impressive at your age.

Remember if it's a race then it's a marathon rather than sprint.

As for the rest of your post, the fact that I don't quote it can be read as me having no strong suggestions for improvements.

You might consider allocating a small amount to alternative investments, less than 5% of your total. You are currently heavily exposed to the global economy.
The trouble is of course that the likes of gold or bitcoin have no yield or growth, it's purely insurance.
Just a thought.

Ps, I don't include house equity in my "wealth" calculation as it's very illiquid and I would still need somewhere to live. Were I to include it in the capital intended to support me, I would have to include a nominal rent figure in my expected expenses to avoid miscounting, which you may have done.

[TUK020]

I probably wouldn't include house equity in this equation, as it is likely to be the delta between two large numbers, and therefore very volatile on a day to day basis.
If you think of your house as a place to live, and you will need one when you retire, then it is probably more constructive to think of your mortgage as a negative in your assets list - pay down is one of the potential investments you need to think about.
Possibly not at today's inflation rate, but later. Paying off debt is a risk free, after tax, guaranteed return. When inflation comes back down paying off your debt may represent the most attractive investment opportunity

[nmdhqbc]

40, single, no kids, work: tech, salary:123k, focused on long-term. annual expenditure: 35k, so FIRE target at 875k. Fair way off that at the moment.

you may already know this if you've been learning about FIRE but...

i was under the impression the 4% rule (35/875) was back tested for a 30 year retirement so depending on how long it takes for you to get there it may not be long enough. i personally am happy to take 4% in perpetuity and adapt my spending in bad times but if you want to just take the £35k and increase it by inflation each year i think 30 years was the timeframe. i think it had a certain bond allocation too.

Also i assume you're thinking in inflation adjusted numbers. if it takes you 10 years to get there the spending requirement of £35k will have gone up and hence the £875k target will adjust up each year.

[Darka]

Also i assume you're thinking in inflation adjusted numbers. if it takes you 10 years to get there the spending requirement of £35k will have gone up and hence the £875k target will adjust up each year.

Exactly, you need to re-evaluate this each year until you are ready to FIRE.

Instead of the usual 25x income that most FIRE sights suggest I went for 31-33 as I felt it gave me a little more flexability.

[1nvest]

Ps, I don't include house equity in my "wealth" calculation as it's very illiquid and I would still need somewhere to live. Were I to include it in the capital intended to support me, I would have to include a nominal rent figure in my expected expenses to avoid miscounting

Illiquidity is only a issue if you rebalance periodically by design rather than naturally.

Owning a home avoids having to find/pay rent to others, has imputed rent benefit. You can count that as equally well as if you exclude home/rent value. A newly retired with £1M wealth, £333K in each of home value, stocks, gold. 4% imputed rent benefit, as though imputed rent was received and then spent on rent = 1.33% proportioned to total wealth. A further 2.66% drawn for spending. Or just count a 4% SWR relative to the stock and gold £666K value.

As a investment the home provides imputed benefit. Yes illiquid, but perhaps where in later life, it might be sold to fund all-inclusive accommodation, such as in a care home.

Why start retirement with half of liquid capital in stocks, half in gold - well because that pretty much eliminates early years bad sequence of returns risk. Having loaded into that at the start of retirement, no rebalancing, spend gold first. 50/50 stock/gold initial liquid assets transitions to 100/0 stock/gold over a number of years, averages 75/25 stock/gold. In some cases the gold might all be spent after just 7 years, but where in such cases stocks did well (such as a 1980/1981 start date when Dow/Gold ratio was down at 1.0 type levels). In other cases you might still be spending gold after two decades or more into retirement. There's a degree of natural (not by chance) multi-year inverse correlation between stocks and gold. Once you're into all of gold spent and drawing from stocks, then the value of those shares in having accumulated over those years is inclined to be 'more than enough', unconcerning, as even if stocks retrace 33% after so many years that is more a case of just giving back some of other-peoples-money rather than eating into ones own capital base.

Extreme examples:

Using US data, a newly retired in 1981 $500K allocation to stocks, drawing a 8% SWR from that saw gold last 7.5 years. During which time $500K in stocks (accumulation) grew to $1M inflation adjusted value.

2000 start date and $500K gold, $40K inflation adjusted withdrawals ... and that's still running as of recent with around $215K of the inflation adjusted value still remaining.

PV

$500K in stocks in 2000, accumulated to date, has in real terms grown to 1.15M

PV

Combined they have around a third more in inflation adjusted terms than what they started with back in 2000. In contrast a 2000 all stock $1M with $40K inflation adjusted withdrawals would be down at around just a third of the inflation adjusted start date capital value remaining

PV

In that 2000 case it was a modestly bad early years sequence of returns case/outcome that having started instead with 50/50 stock/gold was mitigated.

Note other than withdrawing spending amounts, and/or maybe selling a home in late life to fund all-inclusive care costs, no rebalancing. Also a home as as investment serves a longevity insurance, if the 4% SWR capital runs out. More usually historic rewards have supported higher withdrawal rates, 4% is the measured worst case historic 30 years. Also 50/50 initial stock/gold, spending gold first is more inclined to last 12.5 or so years, whilst stock accumulation (dividends reinvested) in inclined to yield 5.7% type real growth (that sees $500K double up to $1M in real terms over those 12.5 years).

[Hariseldon58]

I'd think about Interactive investor for the SIPP, flat charge of £10 month, Fidelity have a .35% fee for SIPPs as I read it.

[Urbandreamer]

Ps, I don't include house equity in my "wealth" calculation as it's very illiquid and I would still need somewhere to live. Were I to include it in the capital intended to support me, I would have to include a nominal rent figure in my expected expenses to avoid miscounting

Illiquidity is only a issue if you rebalance periodically by design rather than naturally.

While I in fact agree with most of your post, I chose to only consider liquid assets when considering expenses that I may have little control over. With the exception of a property, I regard everything else that you mentioned as easily converted to cash.

As to the advantages of owning property, well I'm sold on the idea. We own our house outright. I just don't consider it's value as funds that we can draw upon with any ease.

Liquidity and the ability to move the money can unfortunately be a requirement that has nothing to do with rebalancing. Physical gold is fairly liquid, but difficult to transport and easily stolen. Ignoring war or Jeremy Corbin leading a military coup, it's not unknown for people to suddenly need large sums for life events. Some hold large amounts of cash, usually in a bank, for such events. The OP made no mention of any such (though the pie chart has a unlabeled wedge).

[1nvest]

Liquidity and the ability to move the money can unfortunately be a requirement that has nothing to do with rebalancing. Physical gold is fairly liquid, but difficult to transport and easily stolen

I suspect if anyone offered gold at below spot they'd find rapid liquidity, with speed of take-up correlated to size of discount. Liquidate gold into cash, electronic transfer that cash, repurchase gold at the target destination ... is one means to physically transfer gold relatively easily/safely. In some cases gold can be more liquid than cash, such as banks closed due to bank runs, or where offering a domestic currency is seen as worthless (Afghan attempting to bribe a gate guard to get on one of the last planes out of the country during a coup with Afghani I suspect would have less prospect of being slipped through than another offering gold).

Some secure storage facilities include options for you to move gold. Transfer perhaps £100,000 of allocated gold from their Singapore safe to their Australian safe in a instant. Yes that may very well mean not the actual exact same gold coins/bricks having been moved but that may not be a issue.

Concentration risk is one if not the greatest investment risks, all in one asset, currency, state ... whatever, is exposed to high risk (albeit maybe a small risk of a large loss). A easily diluted risk, using diversification. Gold is a non-fiat commodity currency that competes with fiat-currencies. Own a home, for imputed rent benefit, some stocks/bonds - that pay dividends/interest, some gold, and rebalancing tends to capture volatility benefits (is a mechanical form of trading), if your income is also diversified across imputed, dividends/interest, volatility trading (SWR) also in around equal measure then even if one of those halves the overall portfolio 'income' production effect is relatively mild. Historically you could draw 1.5% SWR from a three way equal blend of (price only) land, stocks, gold assets, along with imputed rent of 4.5% (1.5% proportioned) and 4.5% dividends (also 1.5% proportioned). For a UK investor a third £ invested in a home, a third US$ primary reserve fiat-currency invested in stocks, a third non-fiat commodity currency (gold), has multiple assets/currencies/countries/'income production' diversity.

I wouldn't say gold was easily stolen. Cash and electronic money are more easily and regularly stolen, sometimes via 'legal' means (institutes). Targeting 2% inflation (devaluation) for instance might be considered a form of theft.

[paulnumbers]

I'd think about Interactive investor for the SIPP, flat charge of £10 month, Fidelity have a .35% fee for SIPPs as I read it.

£45 cap for ETF's.

[Hariseldon58]

I'd think about Interactive investor for the SIPP, flat charge of £10 month, Fidelity have a .35% fee for SIPPs as I read it.

£45 cap for ETF's.

Thanks that makes the fee structure far more interesting. That is a major saving and surprising they don’t make more of it.

[Gilgongo]

- Future Buy to Let. If so will need to start BTL company because of personal tax bracket.

Unless you're doing it for reasons other than the ROI, then personally I'd put my money elsewhere on the grounds that BTL (particularly at the lower end of the market) is just too much hassle.

[Hariseldon58]

- Future Buy to Let. If so will need to start BTL company because of personal tax bracket.

Unless you're doing it for reasons other than the ROI, then personally I'd put my money elsewhere on the grounds that BTL (particularly at the lower end of the market) is just too much hassle.

Industrial property is interesting, I let a factory 8 years ago on an insuring and maintaining lease, we offered it for sale as well.

It let on a 10 year lease with no break points and the rent will cumulatively be 90% of the price it was offered at. The value has climbed by over 100% and the rent would be around 25% higher now. Minimal action is required, it’s an attractive investment opportunity for a well located building. Worth considering…